I'm currently testing RoboHelp 8 and I added a PDF to the
baggage files. When I search for a word in my generated output, the
search term is not highlighted in my PDF. Can RH8 do this, or will
it only display the entire PDF in my search results?

RH8 has enabled search for PDF, and MS Office documents
(.ppt, xls, doc) if they are added in the baggage files. One does
not need RHServer to search into these.

But RH8 does not control search highlighting in PDF documents
which is done by Reader. RH8 will show you PDF documents in search
results and once you click on them it will just open that PDF
document without search highlighting. once inside PDF once can use
the search of Reader/Acrobat to see the highlighting.